Textainer Group Holdings Ltd (TGH) 2013 Q1 法說會逐字稿

Welcome to the Textainer Group Holdings Limited first quarter 2013 earnings conference call. My name is Ellen and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Hilliard Terry, Executive Vice President and Chief Financial Officer. Please go ahead.

Thank you, Ellen. And welcome to our 2013 first-quarter earnings conference call. Joining me this morning is Phil Brewer, TGH President and Chief Executive Officer. And at the end of our prepared remarks, Robert Pederson, TEM President and Chief Executive Officer, will join for the Q and A.

Before I turn the call over to Phil, I'd like to point out that this conference call contains forward-looking statements, in accordance with US securities laws. These statements involve risks and uncertainties, are only predictions, and may differ materially from the actual future events or results. Finally, the Company's views, estimates, plans and outlook, as described within this call, may change subsequent to this discussion. The Company is under no obligation to modify or update any or all of the statements that are made. Please see the Company's annual report on Form 20 F for the year ended December 31, 2012, filed with the Securities and Exchange Commission on March 15, 2013, and any subsequent quarterly filings on Form 6-k for additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements.

I would also like to point out that during this call we will discuss non-GAAP financial measures. As such measures are not prepared in accordance with generally accepted accounting principles, a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures will be provided either on this conference call or can be found in today's earnings press release.

Lastly, we will host an analyst meeting on Monday, May 13 at the New York Stock Exchange. I think many of you have already received a formal invitation via e-mail, and if you have not, please let us know. And if you have not RSVPed, please do so by the end of this week. And we look forward to seeing you in New York.

At this point, I'd like to turn the call over to Phil for his opening comments.

Thanks, Hilliard. Welcome to Textainer's first-quarter 2013 earnings conference call.

Textainer's start to the year provides a firm foundation for further growth over the course of 2013. Our lease rental income of $113 million increased 29%, and our adjusted EBITDA of $109 million increased 20%, both compared to the prior year quarter. These increases are a result of the significant increase in our own fleet over the last year, as a result of investments in new containers, purchase leaseback transactions, and purchases of managed fleets. At the beginning of 2012, we owned 59% of our fleet. Today we own 73%, or more than 2 million CEU of our fleet of more than 2.8 million CEU.

Utilization, while lower than last year, remained strong. Our utilization has grown 1.1 percentage points since the beginning of the year. However, it has remained above 95%, an average 95.5% year-to-date. Utilization appears to have bottomed and the last few weeks have shown indications that we will see improvements in the near term.

We increased our dividend for the 13th consecutive quarter, continuing our record of having maintained or increased our dividend every quarter since going public.

We continue to invest heavily in new containers at very attractive prices. In addition to the $198 million we spent in the first -- excuse me --fourth quarter of 2012, solely for new containers, we have invested $232 million this year for both new and used containers. The result is that we have purchased more than 140,000 CEU of new containers since the beginning of the fourth quarter of 2012 for lease outs in 2013. Approximate 90% of this amount was for our own fleet. Furthermore, the majority are either already on hire or are booked for pick up prior to the end of the second quarter. Notwithstanding this strong investment, container prices have not increased during the second quarter to the same extent as they did the last two years. New build prices today are in the region of $2,250 per CEU or approximately $100 below the level of one month ago. Containers ordered today can be delivered in less than two months.

There has been pressure on rental rates, due in large -- in part to the large amount of funds raised by the container leasing industry and the easy availability of new production at the factories. We have seen aggressive pricing for new business, which has served to compress yields. As a result, we are being selective in determining which deals to pursue. Nevertheless, we believe we are well-positioned as we move through 2013, given our strong investment in new containers over the past six months at very attractive prices, below those that are prevailing today, and our recent refinancing, which Hilliard will discuss later.

A handful of shipping lines, primarily from Asia, have ordered more containers this year than was expected. Total purchases to date appear to be relatively evenly split between shipping lines and leasing companies. We believe the increased buying by shipping lines is reflective of container prices not having increased during the beginning of the year to the same extent as they did the last two years, and an improved access to bank financing for certain lines.

We believe total production of new containers in 2013 will be less than the 2.7 million CEU of drys and refurbs produced in 2012. And leasing companies will purchase about 50% of that production. At this time, it is very difficult to predict container demand for the remainder of the year. Freight rates have trended down over the year, and recent attempts to enforce GRIs generally have not been successful. The problem of excess vessel capacity remains, with idle vessel inventory at approximately 4%, and new vessel capacity equal to approximately 10% of the existing fleet coming online in 2013. However, containerized trade is expected to grow 4% to 6% in 2013. We currently expect new container demand to increase in June or July and remain stronger through the third quarter. Consistent with what we have seen year-to-date, we also expect to see an increasing number of purchase leaseback opportunities. With our strong liquidity and access to attractively priced new containers, we believe Textainer is well-positioned to take advantage of market developments in 2013.

I will now turn the call over to Hilliard.

Thank you, Phil.

Turning to the quarterly results, we recorded $129 million of total revenues, topping the quarterly record we set last quarter. Revenue growth was almost 10% above the year ago period. The primary driver of our revenue growth was the 29% increase in lease rental income as a result of the 34% increase in the size of our own fleet when compared to last year, as we purchased new and used containers through PLBs and managed container acquisitions in the latter half of 2012.

The increase in lease rental income was partially offset by a decrease in utilization of our own fleet. This quarter's revenue growth was also partially offset by lower management fees, because of a decrease in the size of our managed fleet, given the number of managed fleet acquisitions. We also saw a decrease in the sales of trading containers, due to a smaller number of containers we were able to source and sell in lower prices. We are seeing a continuation of a trend, whereas shipping lines are executing PLBs for containers near the end of their marine life, instead of executing direct trading deals. PLBs provide shipping lines immediate cash for their containers and allow them to use these containers until they are ready for disposal. However, as we depreciate these containers while they are on lease, unlike trading container inventory, which is not depreciation -- depreciated, the result is higher depreciation. Fewer containers flowing through the trading container line item, and more containers impacting a gain on sale of container line item in the future.

Gains on sale of containers decreased 34%, or almost $4 million, due to the decrease in day one gains on sales-type leases when compared to last year, when we saw a significant number of containers placed on sales-type leases. As you may recall, the non-cash day one gains on sale-type leases represent the difference between the fair market value of containers and their book value at the inception of the lease. If you exclude the day one gains from last year, you will see that the gain on sale of containers were up 6%.

Total operating expenses were up 6% year-over-year, well below our 10% increase on the top line. They remain the lowest OpEx among our peers, based on a percentage of revenue, or as a percent of total assets. Operating expense growth was primarily driven by the increase in depreciation expense, which is the largest component of total operating expenses. Also, direct container expenses increased by 49%, as storage costs increased due to lower utilization rates versus last year. Depreciation expense was $33 million for the quarter, up $11 million, or 51%, as a result of our larger owned fleets.

During the first quarter, we increased the useful life of our non-refrigerated containers from 12 to 13 years based on trends of shipping lines, leasing containers for longer periods, and internal data showing the average age of containers at the time at their disposal. The 13-year useful life is consistent with our public company peers. Refrigerated containers remain at 12 years, given our limited disposals to date. This change resulted in approximately $6 million lower depreciation expense for the quarter.

I think it's important to point out a few facts about recent trends with respect to our depreciation expense. As I noted, PLBs are becoming more of a source of trading containers for us, and we depreciate these containers over a shorter depreciation period, which results in slightly higher depreciation expense initially. Much of a PLB's expected value is in the residual, realized when we sell containers. The net result is that, although PLBs are expected to provide a good return over time, we may see GAAP losses or minimal contributions in the initial year, and profits thereafter. Moreover, the average original equipment cost of our fleet is lower than the prices at which we have been purchasing containers over the last few years. The older units we are selling are at lower cost, with lower depreciation, and, in some cases, fully depreciated; while the remaining higher-cost units and purchases of new containers result in higher depreciation.

Lastly, when you compare dry containers, a higher percentage of refrigerated containers' prices is depreciated annually. This percentage of refrigerated containers -- in our -- as the percentage of refrigerated containers in our fleet increases, so does depreciation expense. If you look at our overall annualized depreciation expense as a percent of gross container value, it is 3.75% this quarter; lower than our peers. Over the past two years, our annualized depreciation has ranged between 3.25% to 4.5% of gross value. Depending on the mix of dry and refurb business going forward -- and new container prices, we expect depreciation to trend upwards in this range.

Moving on. We reported a bad debt recovery of $750,000, due to the successful collection of previously reserved accounts receivable, and a slightly better economic environment for some of our customers. We continue to believe our bad debt expense should remain within the normal range of 0.5% to 1% of revenue. Below the operating income line, interest expense was $22 million for the quarter, versus $15 million in the year ago quarter. The $7 million increase was primarily due to $800 million of additional debt used to fund the expansion of our fleet. Our debt balance increased by 52% in Q1 of last year. However, our interest expense was up by a lower amount.

As Phil mentioned earlier, we have been very successful in lowering our financing cost. We closed the refinancing of the TAP facility, reducing the spread on that facility from LIBOR plus 375 basis points, to LIBOR plus 200. And we increased the size of the facility from $120 million to $170 million. I am also very proud to report that just today we closed the extension of or $1.2 billion warehouse facility, which was repriced from LIBOR plus 263, down to LIBOR plus 195. Our average effective interest rate including swaps is currently 4.18%, down 36 basis points over the last 12 months, and with these recent financings, I expect that that number will come down further. The refinancing of our warehouse facility and the TAP facility are two examples, subsequent to the close of the quarter, of how we are diligently working to lower our funding costs. The refinancing of the TAP facility saves us around $1 million per year, and the refinancing of the warehouse saves us in a range of $4 million to $6 million annually, depending on the amount borrowed. Given the continued low interest rate environment and other options available to us, we see additional opportunities to further lower our funding cost and improve our competitive position.

Income taxes for the quarter were a little over $4 million, which results in a rate that is slightly higher than our expected run rate in the mid-single digits. Our effective tax rate varies quarter to quarter, due to discrete one-time items. As a result, the effective rate recognized on a single quarter as in this quarter, is not necessarily indicative of the effective rate for the full year. We do not expect our annual rate for 2013 to differ significantly from historical effective rates. Adjusted EBITDA of $109 million was up 20% year over year, a clear indication of our strong cash flow and increasing cash flow. Adjusted net income, which excludes unrealized gains on interest rate swaps, for the quarter was $46 million, down 6% year over year, resulting in EPS of $0.81. We have increased our dividend to $0.46 per share, representing 57% of our adjusted net income. While this is higher than normal, of our 40% to 50% of adjusted net income, given our outlook for the remainder of the year, we believe this is an appropriate -- this is appropriate, and will likely be in the normal range as business picks up, and adjusted income increases in the latter half of the year.

We remain -- we maintained a strong balance sheet during the quarter. As of March 31, 2013, our cash position was $77 million. Our total assets were $3.6 billion, and our leverage ratio was 2.2-to-1.

Again, I thank you for your attention. We look forward to seeing many of you at our upcoming analyst meeting in New York. And now I would like to open the call up for questions. Ellen, can you inform the participants of the procedures for the Q and A?

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

The first question comes from Michael Webber with Wells Fargo. Please go ahead.

A handful of questions -- I will start kind of with some of the operating metrics. And, Hilliard, I want to talk a bit about the debt. But you know you guys decided a more competitive pricing environment is kind of in line with what your competitors are talking to. Without getting into specifics, Phil, maybe can you give some color around where yields are right now relative to their historical range? Are we moving down into the single digits? Maybe just a little bit more color around just what you're seeing in the pricing environment?

You know, Mike, I think that is the first question everybody asks in these conference calls, no matter which lessor you're speaking to. And I think you get a very similar response from each one of the lessors, but let me try to answer that question. There's no doubt the market is extremely competitive at the moment. We are doing transactions, generally, with -- in the low double-digits, and cash-on-cash, which is, I believe, what you're asking about. Yes, we have seen transactions done in the single-digit level. We try to be extremely selective and avoid those transactions, but there's no doubt that the market is an extremely competitive market at this -- at the moment. However, we feel we are very well-positioned to compete in these -- this market, due to our low financing costs. As Hilliard mentioned, we have been very successful bringing down our cost of financing over just the past few weeks, and the portfolio of containers we have available to lease out which were purchased -- many of them towards the end of last year or the very beginning of this year, at prices that are lower than today's prices.

Got you. No -- that is really helpful. That's good color. I mean, kind of around that competitive pricing environment, I mean, the opportunity seems like it's a bit smaller with market share. It's kind of coming in just a touch to start the year, and part of that is, I guess, driven by the restart of some of these container purchasing programs for container lines. You know -- I guess, it might be tough for you to answer, but just -- in your view, how much of that is driven by a strategic aim by some of these container lines, versus them looking to take advantage of just kind of inexpensive boxes? And, I guess, when you look at that -- that market share shift kind of easing back a little bit towards kind of the 55%-range, it certainly doesn't feel like that's a firm number. It seems like that can move around quite a bit. How do you think that plays out for the remainder of the year?

Hey, Mike, this is Robert here. I don't really think there has been a huge shift. Yes, the percentage is different. But you've got to remember that many leasing companies, including ourselves -- we started loading up on the fourth quarter. Those numbers are clearly not reflecting in the 2013 stats, but they are containers that we are offering to the market this year. I just spent two weeks in Asia, and I kind of asked the question that you just raised. And I think, in general, shipping lines -- they consider current container prices attractive.

Yes.

There's no doubt, when you look at the shipping lines that are buying, there are probably seven, eight shipping lines only that are really buying the numbers, and the rest are still relying on leasing. For those stronger operators, they do have attractively priced funding available. And I also learned that a lot of them have sold containers by PLBs and they actually like to replenish that container pool with new containers bought at attractive prices. Again, I don't think there is really a fundamental shift here right now; it is just a matter of timing. Total purchasing has been lower in the first part of this year, and it just so happens that shipping lines have taken their share of that.

Mike, I -- Thanks, Robert. I might just add one thing to want Robert said. Some of the cost of funds that these Asian shipping lines in particular are able to access are extraordinarily attractive, lower than what any of the container leasing companies can access. Sometimes in the 1.5% -- lower -- less than 2%, for example. These don't appear to be unlimited sources of funds. We have seen in past years, for example, that availability of that finance exists the beginning of the year. Towards the end of the year, it may not, and they then start to look for even finance leases at higher returns than that. So I think that is another reason why [it's peaked] to the beginning of the year -- we are seeing the shipping lines take advantage of these opportunities.

Got you. All right. Now, that makes sense. A couple for Hilliard, here. I guess, one, you talked about the refi opportunity. And it certainly seems like you guys have been very active there and that could be a nice tailwind for you all and the group this year, kind of against a bit of a slower growth backdrop. I guess, you mentioned that the all-in effective interest rate now at 4.18%. That excludes what you guys just did with your warehouse facility. Maybe -- and if you don't have this, we can take it offline -- but maybe kind of your forward-looking effective interest rate, just including that new warehouse facility and excluding any callable ABS refis?

Yes. And this is excluding, like you said, any callable ABS refi. I would say we would be able to reduce our rate by about 30 basis points, based on the refinancings that we just completed.

Great. That was really helpful. And then one more. And this is more to kind of Hilliard than Phil. But your payout ratio, on the [disc] kind of moved up to, I think, to 57% on the quarter, a bit above your normal range of 40% to 50%. But looks like that's relatively temporary; should drift back down. But just curious, maybe with the payout ratio a bit up, more elevated, Q2 demand looking a bit softer to start and '13 looking a bit more like a [jumble,] does that kind of change the way you guys think about kind of the dividend with 13 consecutive increases, and maybe just how you think about it?

You know, Mike, we've -- the message that has always been consistent about our dividends we take a fresh look every quarter. I think that is the important message to keep in mind. We've started bringing -- we brought up our dividend from a much lower payout ratio up over a period of time, so it's now in the region of 40% to 50%, where it's been. I wouldn't say that there is a ceiling at 50%, for example. We will look at our dividend payout ratio every quarter and do what we feel is appropriate for the Company, given the desires of our shareholders as well as our own CapEx needs going forward.

Right now, I mean, I think it's just that you guys have come to the same conclusion for 13 quarters in a row. The idea is that -- is anything materially different now? And we -- I can take it off-line. But that is helpful. All right. I'll jump back in the queue. Thanks for the time, guys.

Thank you, Mike. Have a nice day.

The next question comes from Justin Yagerman with Deutsche Bank. Please go ahead.

It's Josh on for Justin. I kind of wanted to just maybe go over some of the second -- the sale leaseback opportunities. You mentioned that you saw an increasing amount of some of these older container boxes being sold, kind of maybe instead of scrapping. Is that what we should be expecting for the majority of sale leasebacks this year, or are you still expecting these kind of big lumpy, 5- to 10-year-old box transactions as well?

I am not sure what you are comparing to what, Josh. Could you be a little more specific in your question?

I guess you mentioned that you have seen a lot of these kind of really old boxes being sold, maybe instead of just kind of trading containers. Are you also expecting to see maybe bigger, kind of newer boxes transactions that might be bigger inside?

I'm sorry. I misunderstood. Well, first, let me even take it a step before what you're -- what you're asking. And that is, over the years, we would see transactions that were generally trading containers. Simply, when a container would get to the end of its useful life, the shipping lines would sell the containers, we'd pay on a monthly basis as we took delivery, and the containers would be immediately sold once we'd receive them.

What we have seen over the past couple of years is a transition away from the trading-type deal to these purchase leasebacks. What we have also seen is a transition from purchase leasebacks, generally of older containers, where perhaps the purchase leaseback was almost like a trading deal and the containers came back very shortly after you purchased them, to ones where you might have those containers on your balance sheet for several years, which, I believe, is the crux of your question. So, yes, we are seeing those types of transactions where the containers being purchased might have been manufactured 6 years ago or 7 years ago, as opposed to just 13 or 12 or 11 years ago.

Got it. Yes. That was helpful. And then, I guess, with regard to your managed containers, I guess any kind of new opportunities there? I know it is kind of difficult to project the pipeline of deals there, but maybe if you can provide any more color there, that would be helpful.

On those -- (laughter). We have gotten away from trying to give any projections on purchases of our managed fleet. It has happened several times in the past where, one week, we would contact an owner who wasn't interested in selling, and a week later, they would contact us back and say, actually, they were. So, honestly, we really can't give you any indication of what we see. But we've certainly remain, as we always are, interested in buying containers that we manage.

Can you provide any color on the Q1 CapEx on maybe how much were sale leasebacks of that $232 million, and maybe -- and if any were from the managed fleet, as well?

So, basically, what I have is new and used. And basically 36% of the CapEx was for used containers.

And very, very little of it was from our managed fleet. I would just say it was an almost immaterial amount.

Got it.

If we do a material managed fleet transaction, then we would likely be public with it, but when we buy very, very minimal amounts of managed containers, there is no reason to announce that publicly.

Fair enough. So I guess kind of maybe taking a step back to your first -- to my first question, with regard to container trading revenue and expenses, those were down in Q1. Is that what you are looking -- is that what you are expecting for the remainder of the year?

It will. It doesn't mean that we're not making money by buying older containers. It is just that we will shift to different line items in our income statement. When we buy a purchase leaseback deal, then the container becomes a container in our fleet; unlike the trading deals, which become simply inventory and are sold. So it's -- we still expect to make money trading containers. They will show up in different line items in our income statement.

And, I guess, one more question before I turn it over. With regard to kind of seasonal trends in the dry box market kind of ahead of peak season, has ordering slowed yet, or how do you expect the rest of Q2 and Q3 to play in the dry box demand market?

Well, ordering past May has definitely slowed down. I don't think many people are making forward orders at this stage here. There is quite a lot of inventory on the ground waiting to move, and I think both shipping lines and leasing companies want to see those slots a little bit lower before we start filling up the tanks again.

Great. Well, thank you. I appreciate the time.

Thank you, Josh.

The next question comes from Gregory Lewis with Credit Suisse. Please go ahead.

It's actually Anthony Sibilia for Greg this morning. I just have a few questions. I guess one kind of following up on the liner companies ordering boxes this year -- do you guys have any sense of whether those specific liners have historically relied upon the lessors in the past, or whether -- or have they historically purchased boxes on their own?

I would say the bulk of them have relied on greater ownership in the past. Several of them have concluded significant leaseback transactions in the course of the last two or three years, and their own ratios are a lot lower than what they historically were.

And they're -- like you kind of said, like just replenishing what they have sold into the market?

That's correct.

And then, just another question on the trading containers. It looks like the containers held for sale over the past few quarters has kind of been spiking up. Is that just a result of purchasing older containers, and not being able to clear them out? Or is there some kind of -- has it been more difficult selling them into the market?

Our inventory of unused trading containers has not increased dramatically over the past year, so I'm sorry. I don't have an immediate answer for your question. Let us get back to you with that.

Okay. And then, I guess, just like -- a final question is just like on the OpEx, obviously it's spiked up a little bit this quarter. And it is mostly attributed, I am assuming, to lower utilization. Do you expect that to start kind of retreating as we push through Q2 and Q3 and utilization starts to pick up?

Well, yes, we do. This particular quarter -- and when you talk about OpEx, I mean, the biggest --

Just direct -- direct operating expenses.

Yes, we do. But again, when you have -- assuming utilization rates stay sort of where they are or improve, we would expect it to trend down.

Okay. All right. Thank you guys so much for the time. That's all I have.

The next question comes from Steven Kwok with KBW. Please go ahead.

All right. Thank you. My question was -- just wanted to talk about -- a little bit about more of the competitive landscape. And was just wondering, are there -- who are the players that are kind of being a little bit aggressive? And do you see that coming back down a little bit as we go further out into the year as demand picks up?

You know, when the -- when the total requirements, the quantities required for each shipping line have been somewhat smaller than we've seen in the past, means that there are more leasing companies that can cater to those requirements. So instead of having two, three leasing companies compete for transactions, we have seven -- seven to eight leasing companies. And that clearly increases the competitive landscape.

And one thing that is useful to keep in mind, is just look at what has been happening in the ABS market, for example. Several years ago, you would see the top couple of container leasing companies raising finance in the market. Today, everybody is raising financing in the asset-backed market. So the competition level among the container leasing companies has absolutely increased. There is a tremendous amount of liquidity in the market from all the funds that have been raised, and you can go down the list of all of the container leasing companies and see that many of them have newer owners or are public companies or maybe designs to become public companies, and for those reasons, may be looking also to grow beyond the access to liquidity.

Got it. Thanks for taking my question.

Thank you.

The next question is from Art Hatfield with Raymond James. Please go ahead.

Yes. Good morning everybody, this is Derek Rabe in for Art. Thanks for taking my questions.

I'm sorry. Good morning, Derek.

Yes. Just wanted to look at your thought process for the first quarter investment levels. It is a fairly healthy start to the year just relative to what we have seen going back a few years in the first quarter. On the last conference call, you did say it was roughly $95 million in investment. It appeared to pick up slightly after that. Can you guys just talk about what went on in the quarter to get you more comfortable kind of mid-quarter to start putting more capital to use, even though we have been hearing that the pick up activity has been relatively slower than expected?

I'm not quite sure I understand your question. We've mentioned what our CapEx was for the first quarter. We think that container prices are extremely attractive at the moment. And so we have been aggressively buying containers. I will say that we had expected that there would be a bit more of a demand for containers prior to Chinese New Year, or shortly after. That demand didn't materialize to the extent we expected. That also explains some of the level of investment we made in the fourth quarter of 2013 (sic -- see press release "2012"). In either case, the prices at which we have been buying containers, both towards the end of last year and early this year, we think are extremely attractive prices. And if we are holding these containers, you know, this level of CapEx that we have made, we are quite happy with it. It is completely within the range of our normal level of inventory that we do hold, and the prices are very attractive. So, for those reasons, we haven't been shy about investing in containers.

Okay. No, that's great. Just switching gears here. Looking at the non-controlling interest line item, it reversed trends from recent quarters. Anything going on there that we should be thinking about going forward?

Well, basically we have two joint ventures. One is the TWCL joint venture, as well as the TAP JV that we announced. And I think, effectively, what you are seeing is, last year, the TWCL JV didn't have any net income. This year it does. We have to consolidate those into our books, at then that is just a line item where you see the adjustment being made. So, effectively, the JVs are doing well. Hence, you get more flowing through that line item, this year versus last.

Okay. So we should expect some sort of income going forward?

Yes.

Okay. Thank you. And then my last question -- Can you just remind me what level of renewal activity this year and next year?

About 5.6% of our leases will renew this year. Generally, year-to-year, it is in the range of 6% or 8% of our leases roll over on an annual basis.

Okay, great. Thanks for the help, guys.

Thank you very much.

The next question comes from Sal Vitale with Sterne Agee. Please go ahead.

Good morning, gentlemen.

Good morning, Sal.

Just, first a quick one for Hilliard, what is the current amount drawn on the $1.2 billion facility -- warehouse facility?

It's a little less than $900 million.

Okay. About $900 million. And then, let's see -- one question for Phil. You mentioned that some of the Asian lines that are stepping up purchases, or that stepped up purchases in 1Q, have access to 1.5% to 2% funding. What is the source of that funding, by the way?

Why don't you ask them? Honestly, if I could borrow at those rates, obviously, we would be very interested. And I believe some of them are structured financings, leveraged leases, et cetera, that they are doing in the Asian markets. In some cases they are able to work with state banks in their countries of origin and obtain very attractive financing, as well -- opportunities that really wouldn't be available to us, for example.

Right. So is that a phenomenon that you believe will continue through the rest of the year?

Wait a minute, I think it's important to understand. That is a phenomenon that has existed for years. It is not as though this is -- it is something that just arose right now. We have seen this in the past. At the beginning of the year, we have also seen container shipping lines -- some of them, mainly Asian ones, have access to some very attractive financing. It generally doesn't last for the entire year. So perhaps I should've been clearer when I first stated that. But it -- this is not a new event. We have seen this in the past.

That is the key, though, Sal, if I could add that. It is not unlimited numbers that they can raise at those interest rate levels. That is what I was referring to earlier when I say I think this is kind of the window of opportunity for some of the healthier shipping lines to buy containers.

Okay. So then 1Q might have been a kind of unique situation, in terms of the breakdown of purchases between lessors and ship owners and the shipping lines?

Well, it is not just 1Q, because we are basically putting numbers that are based on what we know and actually through to date. So, basically, the number that we refer to in our own lease ratio, whatever, is for production through May.

Okay, so it's through May. And then, going forward, I think in the release you had mentioned you expect for the full year the lessor share to be 50% to 60%, and then I thought I heard in your comments you mentioned 50%? Or did I just not hear that right?

At this point, I think it is extremely difficult to predict where we are going to end up by the end of the year. It will depend on the level of demand that arises over the summer, for example. Right now, we are thinking that it should be around 50%. We expect lessors to buy little more than half. But it is very, very difficult to predict right now where that will end up.

Okay. That is fair enough. Just switching over to the CapEx you have done year-to-date. You said roughly two-thirds of it was on the new side, and you mentioned that the rates at which you were doing that were low-double digit. And you have also seen some high-single digits in the marketplace, although you seem to be avoiding those types of transactions. Given what you have done and given what your outlook is, what would you say is a realistic CapEx number for the year -- just understanding that managed deals and purchased leasebacks, they're kind of a wild card so they are kind of hard to predict?

Sal, I am going to have to give you the same answer that I did to the previous question, which is it is really impossible to predict that at this point in the year. It will depend on where container prices go, and to what extent demand picks up towards the end of the year, and I don't think there's anybody who's got a crystal ball clear enough to figure out the answers to either one of those questions right now.

Okay. And then just, the last question is -- can you just refresh my memory? Typically, from, say, 1Q, or from the spring to the fall, what is the typical increase in the price of a new box, seasonally?

Well, if we look at 2011 and 2012, there was basically a $500 price differential, per cost equivalent, from the low to the high. We have not seen that range this year at all, and don't expect to see that in 2013.

Okay. Thank you very much.

Thank you, Sal.

The next question comes from Doug Mewhirter with SunTrust Robinson. Please go ahead.

Hi. Good morning. I just had two questions. The first one -- looking at -- on the supply-side, at the box factories. At what point do you think that their interest in maintaining production levels backs off? I mean $2,250 still is a fairly attractive price, but is it getting close to the point where they might take a shift off or cut back on their production rate or will we have a ways to go before it got there?

Doug, they are already producing one shift. And, clearly, lead times for new orders are relatively short, probably four to six weeks, max. They still have orders. And, let's face it, when you look at the fact that the market has not taken off yet, it would seem to indicate that there will be a more traditional timed peak season this year. Everybody expects global cargo volume to increase by 4% to 6%, and since it really has not happened as of right now, you would tend to believe that the peak season is going to go back where it used to be, June through August, maybe September. And I think that that is what they will speculate on at this stage here. I think they will make sure that they have sufficient orders to keep them going, to be able to capitalize on a possible peak, in which case, both leasing companies and some shipping lines will continue to buy.

Yes. What I -- one thing to add, though, to what Robert said. Last year, the shipping lines were quite successful enforcing GRIs. And as the shippers saw that success occurring, they started moving their orders earlier in the year, or moving their shipments earlier in the year, to move goods prior to the next GRI increase. And that caused there to be not a significant peak in the third quarter, but much of the transactions happened earlier in the year. This year, the shipping lines have not been successful in enforcing those GRI increases. And as they have not been, the shippers feel less of a need to move their goods earlier in the year, which is one of the reasons why we -- and I think many of these people looking at the industry -- are expecting that you, as Robert said, you may see that peak season, or the increase in demand, occurring in the more traditional part of the year, towards the late second and third -- going into the third quarter of the year.

That is a very interesting insight. And thanks for the color on that as well, Robert. My second and final question. You know, you talk about yields, but you also talk about financing cost. I mean, if you would adjust your yields you're getting in the marketplace now, but you adjust them for sort of your marginal cost of financing -- does that actually make the trend flatten out a bit where it's actually -- it appears more competitive, but actually if you look at financing costs, the economics --bottom-line economics still kind of wash out to be the same?

Well, yes. There's no doubt that because of the competitive financing cost we have, we can do transactions with lower cash-on-cash yields than we would have been able to do two years ago, for example. But still, having said that, when we look at a transaction, we have to look at all aspects of that transaction. On these earnings calls, we speak, really, just about the cash-on-cash yields. But there's other aspects, too; the return provisions of the container, et cetera, et cetera. So whether we are competitive or not might depend on how we view the transaction as a whole, and not just the cash-on-cash yield. Short answer to your question, though, yes. We can be more competitive with -- we can be equally as competitive with yields being lower, given our lower financing cost and our operating efficiencies.

Okay, great. Thanks very much for your answers. That's all my questions.

Thank you.

The next question is from Ken Hoexter with Bank of America. Please go ahead.

Hello. Good morning, gentlemen. It's actually Wilson on for Ken. I'm going to start first with just a more simplistic modeling question. Given the increased useful life estimate that you guys referenced on the depreciation expense, on a full year -- is the $6 million that you referenced in the press release a good benchmark for kind of the savings going forward? Or are there more puts and takes that we should be factoring in kind of going throughout the full year?

I think it is a good benchmark for the savings going forward, assuming things are at this level.

Got you. And, I guess, most of my other questions have been answered. But if I could dig a little bit deeper on the question from the gentleman before about the yields. I mean, just in terms of your being competitive on the deals that you have seen, has that precluded you from being included -- well, has, I guess-- a better way of phrasing my question would be -- if you are not stepping in for some of these kind of higher single-digit yield deals, would you expect that the yields eventually will normalize toward a kind of a double-digit return that's more kind of in line with what you're thinking? Or, if not, then would you be less willing to kind of put CapEx to work at that point on new boxes?

Our industry is a competitive industry. I don't see any reason to expect a level of competitiveness in our industry to decline going forward. And we're going to continue to act the same way we've always acted, which is be a prudent manager of the capital we invest. When we think the returns are justified, on an all-in -- looking at a deal, including all its aspects, we will obviously invest in those deals.

Great. Thank you for the insight.

Thank you.

The next question is a follow-up from Michael Webber with Wells Fargo. Please go ahead.

Hey, guys. Just had one follow-up question for you. And, for Phil, or -- probably for Phil. You know, we spent a lot of time talking about kind of the noise '13, and kind of slowing seasonality, and things like that. But longer term, in terms of kind of mix shift and your ability to grab share, we have seen a lot of these container lines, the CSCL, USAC, placing orders for 18,000 TEU container ships. There's a big push to allocate capital towards a more fuel-efficient tonnage, in order to compete for price, in the next 5 to 10 years for these lines. I guess, in terms of the opportunity set longer term -- kind of outside of just '13 -- is that stronger now than it was last year? We have really been surprised with the level of capital that's being allocated towards vessels. I would suspect that's moving away from boxes. But maybe any sort of color there, kind of outside of just what we are seeing kind of this season or this year?

You know, I think there is one big point that has probably not been emphasized enough in this -- during this call, and so I'm going to make it now, which is that there is not an excess of containers in the world. Our utilization has come down, and our competitors have come down, but we're talking about utilization at 95%. The world does not have too many containers. And when these big vessels -- as these big vessels come online, yes, we do believe that you're going to see the demand for -- that that will stimulate further demand for containers. There is excess vessel supply; they're not going to help solve that problem. But there is not an excess supply of containers in the world.

Got you. So any incremental shift, I guess, in market share, I mean-- that's a short-to intermediate-term phenomenon. Longer term, you guys -- you think that opportunity set is there or stronger now than it was a year ago?

Well, Mike, if I could just add -- If we're talking about a relatively slow beginning of the year, we are still sitting at the position we are right now, that is not the worst spot. We are doing it at a time where imports into Europe are at a very low point. Just wait until the trade between Asia and Europe picks up, and these big container vessels get to 90%, 95% maybe higher slot utilization ratio. You're going to see an enormous demand for equipment; well beyond what we have sitting on the ground of depot inventory, and well beyond the new production that we have sitting on the ground waiting pick up. So exactly when that happens -- that is a macroeconomic question. We have a hard time answering that. But is it going to happen? Absolutely it is, sometime in the future.

Got you. All right. That's really all I have. Thanks for the time again.

Thank you, Mike.

We have no further questions. At this time, I would like to turn the call back to the Company for closing remarks.

Well, thank you for your attention. We look forward to seeing many of you in New York next week, and we will speak with you soon. Thanks again.